MONTH-IN-BRIEF (Jun 2020)
FDIC Issues Final Rule Codifying Valid When Made Doctrine
By Robert W. Savoie, McGlinchey Stafford, PLLC
The FDIC has issued its final rule codifying the “valid when made” doctrine. The rule clarifies that the interest rate lawfully assessed by an originating depository institution may not be impacted by the sale, assignment, or other transfer of the loan or a change in state law. The FDIC also confirmed that an originating depository institution may apply the law of any state in which it maintains a branch, not simply the law of the state where the bank is chartered. Within the rule, the FDIC clarifies that one component of federal interest rate exportation authority is the right to assign the loans under the preemptive authority of Section 27 of the Federal Deposit Insurance Act.
As the FDIC noted, although banks’ power has traditionally been viewed as carrying with it the power to assign loans, certain courts have issued opinions that lack awareness of the broader context within which Section 27 was enacted and fail to address the significant ramifications of their decisions. The FDIC’s rulemaking makes this understanding an express one that carries with it the weight of the FDIC’s authority, which confirmed longstanding historical precedent. The FDIC also clarified the additional fees and charges included within the definition of interest under federal law.